Gasoline prices surge up to 75pc in Iran

Dubai, April 25, 2014

Gasoline prices in Iran leapt by up to 75 percent at midnight on Thursday, as state subsidies were cut, a risky move that President Hassan Rouhani hopes will improve an economy battered by Western sanctions.

The price hikes will test Rouhani's support among a population fed up with the high inflation that he has pledged to reduce as he pursues talks with world powers aimed at ending sanctions imposed over Iran's nuclear programme.

Iranians rushed to the pumps to fill their cars before the price surge, but there were no immediate reports of unrest, unlike in 2007 when there were riots at some gas stations when cheap fuel was rationed for the first time.

"We have been preparing for two months to implement these plans in provinces, cities and rural areas," state news agency Irna quoted Interior Minister Abdolreza Rahmani Fazli as saying.

"But it is expected that (it) will take place without any problems or displeasure from people."

Subsidised gasoline, available to each motorist in limited amounts, rose from 4,000 rials ($0.16, using the central bank's official exchange rate) a litre to 7,000 rials ($0.28) The price for gasoline sold outside that ration rose from 7,000 rials to 10,000 rials. Diesel and compressed natural gas prices also rose.

That still makes automotive fuel in Iran among the cheapest in the world, but the price hikes will be unwelcome in a country where a quarter of the adult population is jobless or under-employed.

Rouhani's predecessor, Mahmoud Ahmadinejad, launched the subsidy cutting programme in December 2010 when prices of staple foods and utilities bills, as well as gasoline, soared overnight.

The move, coupled with the impact of tightened sanctions by Europe and the United States, pushed inflation from 8.8 percent in August 2010 to around 40 percent by the end of Ahmadinejad's term in 2013.

Rouhani, who secured a surprise election win last June, has said the money saved by cutting state subsidies will be used to generate jobs for masses of unemployed youth.

If he can convince Iranians he can improve the economy, they may forgive him the price rises which will, in the immediate term, counter his efforts to reduce inflation, which is currently at 35 percent.

"Of course I don't want prices to go up, but the reality is that the prices have to become real," said a 30-year-old communication specialist in Tehran.

"But I expect more services from the government in return, such as health and transportation." -Reuters